Job Order Costing: Job order costing is a cost allocation method used by companies that produce customized or unique products or services. It is suitable for industries where each unit of production or job is distinct and produced to customer specifications. Here are two examples of companies that use job order costing: Custom Furniture Manufacturer: A custom furniture manufacturer produces unique pieces of furniture tailored to each customer's preferences. Each order is different, and materials and labor are specifically allocated to individual jobs, making job order costing an appropriate cost-tracking method. Printing Company: Another example is a printing company that produces customized brochures, wedding invitations, or marketing materials. Each printing job varies in terms of design, quantity, and paper quality, making job order costing essential for accurate cost determination. Process Costing: Process costing is employed by companies that manufacture homogeneous products in large quantities, often using continuous or repetitive processes. It is suitable for industries where products are similar and it's challenging to trace costs to individual units (Heisinger, K., & Hoyle, J. (2012). Here are two examples of companies that use process costing: Beverage Manufacturer: Companies that produce beverages like soda or bottled water typically use process costing. The production process is continuous, and the finished products are virtually identical. Costs are spread across the entire production process, making it difficult to assign specific costs to individual bottles. Oil Refinery: Oil refineries process crude oil into various petroleum products like gasoline, diesel, and jet fuel. The refining process is continuous, and the end products are standardized. Process costing is used to allocate costs to the various petroleum products. Similarities between Job Order Costing and Process Costing: Cost Accumulation: Both methods aim to accumulate and allocate
production costs to products. Direct and Indirect Costs: Both methods distinguish between direct and indirect costs. Direct costs are traced to products, while indirect costs are allocated based on a predetermined allocation basis. Differences between Job Order Costing and Process Costing: Nature of Production: Job Order Costing: Used for custom or unique products with distinct characteristics. Process Costing : Used for large-scale production of homogeneous, standardized products. Cost Allocation Method: Job Order Costing: Allocates costs based on specific jobs or orders. Process Costing: Allocates costs based on production processes or departments. Use of Work-in-Progress (WIP) Accounts: Job Order Costing: Involves multiple WIP accounts, each representing a specific job or order. Process Costing: Typically has one or a few WIP accounts representing the entire production process. Cost Variability: Job Order Costing: Costs can vary significantly from one job to another. Process Costing: Costs are relatively uniform across all units produced. In conclusion, job order costing is suitable for companies that produce custom or unique products, while process costing is more appropriate for companies that manufacture standardized products in large quantities. Both methods share the goal of allocating production costs but differ in their
approach based on the nature of production and cost allocation techniques. References: Heisinger, K., & Hoyle, J. B. (2012). Managerial Accounting. Creative Commons by-nc-sa 3.0. https://open.umn.edu/opentextbooks/textbooks/managerial- accounting
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